STATE FARM MUTUAL AUTOMOBILE APPELLANT/ INSURANCE COMPANY APPEAL AND v. CONTINENTAL CASUALTY APPELLEE/ INSURANCE COMPANY
Annotate this Case
Download PDF
RENDERED:
December 13, 2002; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
NO.
2001-CA-002133-MR
and
2001-CA-002193-MR
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY
v.
APPELLANT/
CROSS-APPELLEE
APPEAL AND CROSS-APPEAL FROM BOYD CIRCUIT COURT
HONORABLE C. DAVID HAGERMAN, JUDGE
ACTION NO. 98-CI-00873
CONTINENTAL CASUALTY
INSURANCE COMPANY
APPELLEE/
CROSS-APPELLANT
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BARBER, BUCKINGHAM, AND MILLER, JUDGES.
BUCKINGHAM, JUDGE: State Farm Mutual Automobile Insurance Company
(State Farm) appeals and Continental Casualty Insurance Company
(CNA) cross appeals from a judgment and orders entered by the
Boyd Circuit Court.
The court determined that State Farm and CNA
“shall share equally the expenses of litigation, settlement
and/or judgment” resulting from a personal injury automobile
accident between Lou Castle and Charles Runyon, Jr., “up to
$100,000 per person, $300,000 per accident, each.”
We affirm.
On February 6, 1998, Castle was test driving a 1998
Ford Explorer owned by Boyd County Ford, Inc., when she was
involved in an automobile accident with an automobile occupied by
Charles W. Runyon, Jr., Charles Runyon, III, and Christie Runyon.
At the time of the accident, Boyd County Ford maintained a motor
vehicle liability/garage policy with CNA.
Castle was insured
under an automobile liability policy issued by State Farm to her
husband, John Castle.
A civil action was filed in the Boyd Circuit Court by
each of the Runyons, alleging personal injuries and damages to
each of them as a result of the accident.
The Runyons’ civil
action was filed against both Castle and Boyd County Ford.
State
Farm defended Castle, and the case proceeded to a verdict with
damages being awarded to each of the three Runyon plaintiffs.
State Farm and CNA were unable to reach an agreement as
to the percentage of liability under each policy for the Runyon
claims against Castle and to the cost of Castle’s defense.
Castle was covered by the “non-owned car” provision of the State
Farm policy, and the coverage applicable to her included an
“excess” insurance provision.
It stated that “[i]f a temporary
substitute car, a non-owned car or a trailer designed for use
with a private passenger car or utility vehicle has other vehicle
liability coverage on it, then this coverage is excess.”
Boyd
County Ford’s garage policy with CNA only covered the damage to
Boyd County Ford’s automobile and expressly denied liability
coverage for a Boyd County Ford customer like Castle.
A policy
endorsement provided the language that excluded customers like
Castle from coverage.
Because State Farm and CNA disagreed
concerning the extent each were liable in connection with the
-2-
Runyon-Castle accident and litigation, State Farm sought a
declaration of rights from the Boyd Circuit Court concerning
State Farm’s and CNA’s respective liability.
State Farm argued to the trial court that liability
should be apportioned 91% to CNA and 9% to State Farm.
This
argument was based on liability coverage of $1,000,000 per
accident in the CNA policy and coverage of $100,000 per person
and $300,000 per accident in the State Farm policy.
On the
other hand, CNA argued to the court that it had no liability in
connection with the Runyon-Castle litigation because of its
policy provision excluding coverage of customers like Castle.
On December 6, 2000, January 31, 2001, and September 4,
2001, the Boyd Circuit Court entered a judgment and orders
finally disposing of the issue.
First, the court determined that
CNA’s endorsement excluding customers from coverage was “void as
against public policy.”
It then analyzed the case as if CNA
provided the coverage mandated by public policy and compulsory
insurance laws, specifically KRS1 190.033.
Further, the court
determined that each insurer attempted to provide “excess”
coverage.
Finally, it concluded that State Farm and CNA should
“equally share the expenses of litigation, settlement and/or
judgment” in the Runyon-Castle litigation “up to $100,000 per
person, $300,000 per accident, each.”
This appeal by State Farm
and cross appeal by CNA followed.
We first address CNA’s argument that it has no
liability due to the policy endorsement which excluded customers
1
Kentucky Revised Statutes.
-3-
like Castle from coverage.
KRS 190.033 provides in relevant
part:
The bond or policy for all dealers except
automotive recycling dealers shall provide
public liability and property damage coverage
for the operation of any vehicle owned or
being offered for sale by the dealer or
wholesaler when being operated by the owner
or seller, his agents, servants, employees,
prospective customers, or other persons.
KRS 190.033. [Emphasis added.] CNA acknowledges that its policy
did not provide coverage to Castle although it was required to do
so by the statute.
Nevertheless, CNA argues that “when the
dispute is between two insurance companies, and not members of
the public, public policy is never implicated.
Accordingly, the
respective terms and conditions of the insurance policies
control.”
Thus, CNA asserts that, although the statute would
have provided protection for Castle despite the policy
endorsement, “such protection does not exist for State Farm, an
insurance company.”
The trial court disagreed, and so do we.
In support of its argument, CNA cites Royal-Globe Ins.
v. Safeco Ins. Co., Ky. App., 560 S.W.2d 22 (1977); Omni Ins. v.
KY Farm Bureau Mut. Ins., Ky. App., 999 S.W.2d 724 (1999); and
Empire Fire and Marine Ins. v. Haddix, Ky. App., 927 S.W.2d 843
(1996).
However, these cases do not give insurance companies a
free hand in contravention of public policy and statutory
mandate.
Rather, the coverage required by public policy was
provided in each of the cases.
Moreover, the cases reflect that
when public policy is satisfied and compulsory coverage is
provided, a dispute between two insurance companies involving a
question of the extent of each insurer’s liability only requires
-4-
an analysis of the policy language.
Royal-Globe, 560 S.W.2d at
24-25; Omni Ins., 999 S.W.2d at 727; Empire Fire, 927 S.W.2d at
845.
Because compulsory coverage was not provided by CNA and
public policy was not satisfied, we conclude the cases cited by
CNA are not applicable.
When an insurance policy fails to provide or attempts
to take away what public policy and KRS 190.033 require be given,
the offending provision is void.
See Universal Underwriters Ins.
Co. v. Veljkovic, Ky. App., 613 S.W.2d 426, 428 (1980).
the policy endorsement to the CNA policy was void.
Thus,
Nevertheless,
the policy remains in effect and is deemed to provide the minimum
coverage required by public policy.
Id.
The statute prescribes
the mandatory minimum coverage of $100,000 per person and
$300,000 per accident.
KRS 190.033.
Accordingly, CNA was deemed
to provide the $100,000 per person and $300,000 per accident
minimum coverage to Boyd County Ford customers such as Castle.
In short, the trial court ruled correctly in this regard.
Having determined that CNA must provide liability
coverage in accordance with the mandatory minimum amounts stated
in the statute, we now turn to the question of how the liability
is to be allocated between State Farm and CNA.
The trial court
correctly focused upon the language of the respective policies in
making this determination.
24-25.
See Royal-Globe Ins., 560 S.W.2d at
It determined that the parties agreed each policy
contained an excess coverage provision and that the liability
under the judgment in the Castle-Runyon litigation should be
shared equally.
-5-
State Farm argues in its “Combined Reply Brief and
Brief of Cross-Appellee” that CNA’s coverage is primary.
several problems with this argument.
We have
First, as we have noted,
the trial court stated in its judgment that the parties agreed
that their respective policies contained excess coverage
provisions.
Second, State Farm did not raise the issue in its
appeal; rather, it raised the issue in its combined reply brief
and cross-appellee brief.
In fact, on page 12 of State Farm’s
appellant’s brief, it seems to agree that CNA’s coverage in this
regard would be excess coverage in accordance with CNA’s
declarations page.
Third, any argument by State Farm that CNA
had primary coverage appears to be at odds with its argument to
the trial court and to this court in its appellant’s brief that
liability should be apportioned on a 91% to 9% basis.
Fourth,
State Farm asserts that CNA has primary coverage due to language
on page 11 of CNA’s policy.
However, in reviewing the policy it
is apparent that the language does not relate to the liability
coverage portion of the policy but to the garage conditions
portion.
In short, we disagree with State Farm’s argument that
CNA had primary coverage.
On the other hand, CNA argues that its policy contains
a “non-standard escape” clause.
It contends that this clause
precludes liability since a non-standard escape clause will
prevail over an excess clause.
845.
See Empire Fire, 927 S.W.2d at
However, CNA overlooks the fact that the non-standard
escape clause was not a part of the policy because it was changed
by the endorsement.
-6-
“The policy and its endorsements validly made a part
thereof together formed the contract of insurance, and are to be
read together to determine the contract actually intended by the
parties.”
Kemper Nat. Ins. Cos. v. Heaven Hill Distilleries,
Ky., 82 S.W.3d 869, 875 (2002), quoting 1 Couch on Insurance 2d,
§ 4:36.
Since the endorsement constituted the insurance
contract, the provisions upon which CNA now seeks to rely were
not a part of the contract.
Therefore, CNA cannot rely upon
those provisions as an expression of intent.2
Accordingly, the
trial court correctly determined that CNA’s liability, like State
Farm’s, was excess.
State Farm argues that liability between it and CNA
should be apportioned at 91% and 9% respectively because CNA’s
policy provides a liability limit of $1,000,000 while its policy
provides a limit of only $100,000.
However, this argument
overlooks the fact that CNA is only liable up to $100,000 per
person and $300,000 per accident.
Veljkovic, 613 S.W.2d at 428.
State Farm’s policy also provides the same limits of liability.
Furthermore, as State Farm and CNA were responsible only for
“excess” coverage, the policies were “mutually repugnant.”
See State Farm Mut. Auto. Ins. Co. v. Register, Ky. App., 583
S.W.2d 705, 706 (1979).
As such, the trial court properly found
State Farm and CNA equally responsible for the litigation,
2
CNA’s reliance upon Lewis v. West American Ins. Co., Ky.,
927 S.W.2d 829 (1996), is misplaced. That case states only that
where the void clause is separable from the remainder of the
policy, the remainder is enforceable. Id. at 836. In the case
sub judice, the issue is whether a clause in an earlier version
of the policy became again effective when the endorsement which
changed it was declared void.
-7-
settlement, and/or judgment arising from the Castle-Runyon
litigation.
The judgment and orders of the Boyd Circuit Court are
affirmed.
ALL CONCUR.
BRIEFS AND ORAL ARGUMENT FOR
APPELLANT/CROSS-APPELLEE:
BRIEFS AND ORAL ARGUMENT FOR
APPELLEE/CROSS-APPELLANT:
John F. Vincent
Ashland, Kentucky
Patrick M. Hedrick
Ashland, Kentucky
-8-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.